GREAT DEPRESSION OF 1929 VS GLOBAL FINANCIAL CRISIS OF 2008-2009

(Bernanke , 2007b White , 1984 . They asserted that failure by the Fed to reverse the decline in money stock with open market operations and loans to banks through discount windows added further pressure to the economy (Friedman , 1963 ' According to them , the 1937 -1938 recession was triggered by the Fed 's attempt to stimulate lending by doubling of the required reserve - ratio , this had the opposite effect

Mishkin (2007 ) writes that the importance of this theory to most economists is that it opened a whole new connection between the financial sector and the

macroeconomy . Another important contribution was that it suggested new research agenda Calomiris (1993 ) summarized them thus

Can the reduction in money stocks from 1930 to 1933 explain the bank failures or did they have a separate origin

Was the demand for money stable given the low nominal short term interests rates in the 1930s or was there a liquidity trap

Could nominal price and wage rigidity offer an adequate explanation for the persistent stagnation during the 1930s

Were policy failures by the Fed actions acts of omission or commission or did they represent the application of the old classical theories to new circumstances

Were open market operations by the Fed , unaccompanied by reforms in the monetary and bank regulations , sufficient in reversing the 1930-1933 stagnation

Following the publication of the Monetary History , economist focused either on confirming Friedman and Swartz assertions or in researching the implications of their findings . For two decades , the focus was mainly on the first three questions . Unfortunately , economists restricted there inquiries within the framework of the sticky-price IS-LM paradigm . This approach severely limited the search for alternative transmission mechanisms between financial markets and the macroeconomy (Bernanke , 1983 . Support for the Monetarist theory has come from formal statistical tests which examined the correlations between...